Spotlight On... Contact Email:
Sophie.Chou@
tw.ey.com
CONTROVERSY TAX
SPOTLIGHT ON... Sophie Chou, EY
“In Taiwan, the Supreme Court has ruled in favour of the five taxpayers in tax controversy cases on the topic of goodwill amortization; EY’s client is notably the first of these wins. We attribute much of our success to the diverse environment at EY, which helps to shape our professionals into being more creative and thorough tax advocates.” – Sophie Chou, EY, shares her expertise on tax controversy matters in Taiwan.
Q
What more can you tell us about EY’s Tax Controversy services?
Our local Business Tax Advisory (BTA) team has two partners focusing on tax controversy services, namely Chienhua Yang and myself. Unlike our competitors, we do not have a designated controversy service team because we believe that equipping our professionals with a spectrum of tax knowledge makes them not only good segment specialists, but better business advisors overall. Thus, every one of the more than 60 people in our BTA team is capable of handling tax controversy work.
Unique among our competitors in the way we operate, we continue to win in the market. In years 2011–12, goodwill-amortization deduction was a hot topic in Taiwan. More than 100 cases were brought before the Supreme Court—only 5 taxpayers prevailed. We helped our client to win the only goodwill amortization case in which a taxpayer prevailed in both the Supreme Court and in Taiwan’s High Court.
Q
Multinational corporations are facing a challenging tax environment; a convergence
of global forces has resulted in an increase in the number and size of tax audits, assessments, and disputes with revenue authorities worldwide. Can you explain more about State and Local Tax Controversy, and what they mean for businesses?
Traditional types of audits include expense deductibility, revenue recognition and eligibility of tax incentives are still commonly seen. However, as their awareness on tax avoidance involving cross-border transactions grows, tax authorities are increasingly shifting their focus toward other issues such as the eligibility of tax
treaties (anti-treaty shopping); transactions that use convoluted structures to achieve tax benefits; inappropriate transfer pricing arrangements; and planning involving the conversion of taxable income into tax-exempt income. The Ministry of Finance (MOF) has proposed to introduce more comprehensive anti-avoidance rules into the law to close the loopholes of the current tax system. For example, after the transfer pricing regulation and thin-capitalization rule, the MOF is considering rolling out the Controller Foreign Corporation (CFC) rules and Place of Effective Management (PEM) rule in year 2015.
Also worth highlighting is that, under local tax practices, there is no clear distinction between tax avoidance and tax evasion. When in doubt, tax authorities tend to adopt a “substance over form” doctrine, to re-characterize the transaction their way. This leads to uncertainty in transactions, an issue many foreign investors deem market- critical.
Q
What are the most common challenges faced by your clients?
Lack of detailed tax law regulations: Unlike jurisdictions with more developed tax environments, Taiwan’s present tax laws are not as comprehensive as they need to be to be able to deal with modern society’s complex transactions. Many articles enacted into law back in 1980 still have not evolved to cope with a business world that has changed so much in these last three decades. As a result, disputes are often settled by the officer or judge in charge based on personal interpretation of the law. This continues to pose great uncertainty for taxpayers.
I think that Taiwan’s government can perhaps adopt ideas from the United States and Germany, two developed countries which have updated their laws and regulations to cover evolving situations; to prevent such things as conflicting interpretations amongst tax authorities, among others.
Quality of administrative remedy system: There are four stages of tax administrative remedy in Taiwan: re-check, tax appeal, High Court tax litigation and Supreme Court tax litigation. Most of the High Court and Supreme Court judges come from the Civil or Criminal litigation systems, where accounting and tax knowledge is not a prerequisite for conducting hearings. This obviously advantages the same government’s tax authorities, as we’ve seen in the 95% of the 2011-12 cases in which taxpayers did not prevail.
The government in Taiwan continues to be urged by taxpayers unsatisfied with the prevailing administrative remedy system to form a designated tax court with judges or officers having professional tax, legal and accounting backgrounds. Meanwhile, we encourage multinationals who are (or are considering) doing business in Taiwan to consult with their professional tax services and/or legal advisor before making any tax-related or legal decisions there.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms. 51
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